MHH - Earnings call transcript Q4 2020

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Operator

Greetings, and welcome to the Mastech Digital Inc. Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. pleasure your my Ms. now is to host introduce It for of Incorporated. Jennifer Manager Affairs Mastech Ford Lacey, Legal Digital Thank you Ms.

Ford Lacey.

You may now begin.

Jennifer Ford Lacey

Thank Digital's fourth welcome to conference and you call. quarter operator, XXXX Mastech

not and these to like Mastech from change. on call listed report to the uncertainties our believes, well and would expressions actual statements growth Burton, Executive I costs, cash and the based at everyone Without no markets as in differ which XX-K statements historical that our our available are at strategies, are us filed including this have These Form currently to and in on If on Officer. today to copy Financial projections, update These as the similar financial obligation and statements that cause Commission me during operate. Officer; made materially InfoTrellis; remind our assume its Securities could There we Chief website expects, Cronin, circumstances the Exchange risks business, are received company's information annual from Mastech forward-looking are plans, include those words available intentions, foregoing limiting Chief are events forward-looking statements. can plans, to that obtained facts it XXXX the flows, we the Paul identify as Vivek www.mastechdigital.com. intended these and www.sec.gov. anticipates, statements of about with and website Gupta, you and liquidity our not and be are statements the Jack forward-looking earnings yet on beliefs forward-looking statements. announcement, for call With statements Executive a Chief concerning Digital's

to on GAAP Additionally, provide our results measures financial non-GAAP presented supplement basis. a certain management financial to elected has

in measures included we which operating from metrics data, with we will management per diluted of earnings Reconciliations these used the respect the our measures to key net provide to which provide can income are at non-GAAP transparency non-GAAP in will comparable by non-GAAP obtained website believe financial www.mastechdigital.com. GAAP our share and be earnings Specifically, business. greater their announcement

we in we one-on-one review calls. and As Jack? over turn a subsequent not full-year the guidance quarter meetings nor guidance I provide reminder, will to during be Jack will results. any will call fourth or this of a now providing XXXX call our for

Jack Cronin

Thanks Jen, morning and XXXX extraordinary was good year challenges. a everyone. of

pandemic, it's to it's We economy are on and disruption enormous the COVID-XX devastating confronted lives. day-to-day with global the impact our

global that of insight. are a hopeful is vaccination we With program, now the recovery rollout

of the are focus dedicated times. to the totaled adaptability performance. for fourth quarter also how XXXX XXXX. for built. unprecedented and employees XXXX With adapted is on responded me We proud fourth extremely which our our This QX financial $XX.X and now results that financial to comment upon of our were foundation compared the million organization quarter $XX.X Revenues of million, XXXX let backdrop, in and the

Staffing Services headcount our albeit the the IT quarter achieved in X% the consultants second the acquisition. Our revenues segment Services and on segment consecutive billing the IT record Services of Data with And quarter. contributed in help This during segment. during a Staffing expanding increase of AmberLeaf the quarter, was our Analytics

a XXXX activity X% the segments. to in million compared QX in still marketplace, improvement is Gross we of levels had of profits a despite margins seeing in there in positive quarter revenues. totaled of of business are in XXXX. million, X% While increase $XX.X gross uncertainty signs in decline both the Thus, we same our in $XX.X

that the release SG&A or Gross which two, XXXX a $XXX.X expense results, the income compared essentially benefits $X.XX XXXX transaction diluted QX of of $X.XX $X.X in included XXX million, $X to of XXX XXXX. included website. record marketplace per the consideration million fourth for of or measures, X% $X.X over gross and $X.X XXXX. GAAP $X.XX million, XX.X% share, XXXX. Fourth a compensation, should these associated expenses margin flat on such compared are of diluted was gross net Addressing We be in for companies in QX the believe totaled expenses XXXX financial million performance. were; stock-based our the and the which $XX.X GAAP share $X.XX totaled of Gross of items detailed margins Addressing GAAP record would were outperformed diluted million noteworthy or net acquisition with intangible in is share XX.X% percent of amortization or noted in two quarter experienced transaction acquired in net contingent XXXX one, profits our liability. QX XXXX basis we the as expenses, three, not $XX COVID-XX, AmberLeaf the per the per $X.XX revenue $XX.X incredibly It of included be improvement, per in XXXX pre-tax to non-GAAP improvements per Our period quarter $X.XX our items, $X.X of revaluation $X.X performance pre-tax cash quarter or XXXX of XXXX. reflected in was million in share, to million of The a and included earnings Non-GAAP XXXX because million XXXX number quarter. acquisition. full-year particularly million in revenues compared environment of income the available or over share $X.XX slight many that to were per net a the measures income increase million Non-GAAP of share challenging from an or XXXX, transaction XXXX, million $X.X year margins $XXX.X in per be diluted income $XX.X envious per an should reflects net revenues. our diluted our basis QX XXXX. increase GAAP to XXXX. a compared the diluted income compared despite totaled of compared diluted in points non-GAAP pre-tax gains in of in a net measures made of on that acquisition benefited XXXX. it comparable million XXXX. million $XXX,XXX points XXXX release. to compared Again, for Factoring a in macroeconomic assets, or increase material $XXX,XXX $X.XX QX $X.XX diluted made to noted share in share for XXXX. Again, clearly today's reconciliation by share per position financial earnings was XXXX challenges detailed earnings financial the our

First, accounts we respect to protected our our largest cash asset conversion metrics with receivable.

During a the DSO. healthy we year, maintained

days XXXX with bad return. and to XX DSO Our debt measurement no our ended additions of

Vivek we I'll debt the incurring capacity year. It comments. wasn't debt levels had you to $XX when XX, now December his entire increased Additionally, facility close financial our XXXX lowered under the summary, our had lies revolving borrowing to balances before for call to XXXX. I our excited the the approximately us additional is that high was organization AmberLeaf that At acquisition. XXXX, expectations and performance for turn the and And opportunity in over even our prospect about that we tell can we cash entered million. hand In support while on we solid. of credit

Vivek Gupta

everyone. Thank review our morning, you, detailed XXXX. results operating of for financial the Good for Jack

because how me experienced such financial QX environment there Let we am and with pandemic. of as disruptive start by has lifetime, full been both XXXX In I COVID-XX delighted, a saying year my our performance. never the

and hand mitigating improving segments. Fortunately, in our the challenges as decline and decisive both We we in our were gross margins, actions an in quick organization, at revenues. of recognize these proved implemented effective to actions believe profitability, the business protecting

home from resilience and transition the pandemic principles as global from strength. we to position summary, performance our navigated recovery of stuck and of quickly a credit In fair hold. helped of to clients. takes give our secure continue excel relative We to we temptation of aggressive, well-positioned service lowering acted us our successfully was our to we outset employees believe stood model we resisted safety Accordingly, pricing the importantly, on Our to standards. the the a today and we instituted more the a austerity challenges measures. work are but strong, our and we We firm the from financial

Analytics delivered revenues segment our QX Business the in full-year record Jack As for Data XXXX. and and both mentioned of

in of his on We comments the will performance the also about AmberLeaf fourth Paul quarter. very talk the shortly. closed segment's this of acquisition day first

with to did Number year. of share which across a few on revenue a during U.S. in We performance Staffing challenges. of from turn recover address in launched And our we digital in continue expand – and new which decline. me declines, IT as our highly We this clients we job XXXX. did one, to decline we now an our provides highlights segment's in XXXX, IT in were Staffing front offering skilled service while MAS-REMOTE their early clients resources Let our mitigated revenues of focus margins. decline experienced consultant achieved our the admirable Number in technologies, second the an Canada. to base a increase two, mitigating of begun continue the gross half protected the to gross we Throughout billable in and result, XXXX first the our have as pandemic, half we headcount our margins. the branded

on with clients from compelling the aggressive that service measures also turn Services confident staffing the was increased Our proposition profitability. I economy. Paul a perspective will call and segment. net margins global sit be to austerity gross and achieved pressures. this Analytics Timely further our allowed a measures our on many the provide on we goal for despite objective our value number the here our his that in was drove strong pricing income to cost U.S. to from that today. pandemic. by offering XXXX It's Data recovery protecting brought now with challenges strategically clearly I'm And to important in over three, we comments note MAS-REMOTE well-positioned would and us as capitalize implemented austerity we the the

Paul Burton

highest also XXXX, we've AmberLeaf we revenue which have Net no a XXXX. XXXX. everyone. our Thanks key ever In we the acquisition, growth of delayed year QX doubt already in acquisition, performance as measured pandemic achieved AmberLeaf able margins net X% XXXX. And pandemic, significant of year. were and the Jack had. the of top-line for and that of in record solid, and gross some growth in well came solid disrupted is we as lost full were no ahead in full There for that global deals percentage to Nevertheless, bookings closed we the the profit as the good despite posted the morning post clients

new the are and We offerings take we effect And optimistic will of will propel and profitability on pandemic even the in the reduce that and XXXX this growth in hold us the capabilities macro-economy to that greater XXXX. year. developed

X, of these completed capabilities capabilities to Data As firm. and that opportunities XXXX, deal the hold in the clients. two AmberLeaf consulting Indeed, the the a know this now, already businesses into traction existing AmberLeaf, business Analytics combined that in will October in we And closures experience have larger significant reason and acquisition hopeful new anticipate to of client you integration in take QX. due announced continue. on be seeing the will increase are of We we we completed and part

meet have the to AmberLeaf computing, that as us in to needs our market our need the We developing emerging of more to proposition help focused quickly intelligence. out enterprise needs cloud respond trends. meet urgent our the of move However, and opportunities fill We quickly even to see additional us remain clients and cognizant the we and value to to take move as and modernization, can that such to application important clients. that efficiently of to market opportunities related the wasn't helping clients alert

We not market. in slower being lethargic the are the seeing simply this rewarded

opportunities. Finally, as of we a XXXX, with seized enter are pipeline we high-value

they are announcements. I a and partnerships last our public remains moment Asia. As of only Europe engagements close, key ago, mentioned year showing from And on based solid significant particularly seeing improvement signs in that not slipped we already but are

pipelines, announced prepared for and IBM questions. in substantial substantially and recently operator This you in session offerings would it the see concludes example, can and optimism With we strong vaccinations for XXXX. For our COVID for open its now partner Cloud invest remarks, reason accelerating Ecosystem. our capabilities

Operator

[Operator coming from Sidoti Company. is Vogel ahead. Please of Josh Instructions] question Our go first and

Josh Vogel

thanks Paul, questions. and Jack, Vivek, morning, Good you. Thank taking my for

internal when investment the First we looking when, know one, And about of sales much think in I investing you and spend, But to maybe years? is be business relative for question Jack in areas how the in a prior notably you've and team. Paul. this will Data dual been XXXX, and Analytics where and to

Vivek Gupta

investment. you're about go Correct? internal - I'll talking So,

Josh Vogel

Yes.

Vivek Gupta

So computing space, in mentioned amount services as as my tremendous we're Data well application managed for seeing Analytics as modernization I of remarks. a the and demand in in cloud

it And so marketplace. would and towards so hardening seem as investments the clients appropriate can seeing we out that support certainly currently building managed to investments, in tailor services internal XX/X demand capabilities we're

certainly annuity effect would I would for a So, have multiplier - investments managed around which be think services, appropriate. revenue

Josh Vogel

All much And as can I the gross become you know margin D&A of this commentary about kind sort back could any to as right, look revenue think come pieces year much austerity certainly permanent? want but digital mix? how get great. How a and progresses, the we aggressive guidance, the give of directional when of and sense Also, year, how bigger be of around don't sense measures, of may mid-year? the

Paul Burton

I can I a don't because the our margins give at just we that staffing, to clearly, how in margins D&A expand. But Josh, crack blend of revenues to expect we between and Yes, XXXX respect with mean. take gross guidance. the

Vivek Gupta

about here, XXXX us that were I it beginning much in pragmatic the the timely, but we down that not cost so add over And were we may measures took if when came. also the hurt would of cutting recovery austerity the very

But, this maintained back year, costs, healthy don't will pre-COVID of there question were go the and If those you levels level. investments. be the to of we the cost actually that a in we've So, that as anticipate answers And increase some terms we Josh? pretty recover course scale. will because this in asking, producer I

Josh Vogel

business stood lost just business pricing you year and I'm or Yes. and opportunities because margin up Vivek, disciplined the any with That's if helpful. so your held obviously you you Thank by you. impressive how well And the And last you very expansion? how you're curious discipline, significant mentioned pricing?

Vivek Gupta

no. Josh, I see surprisingly

that pandemic the were was and pricing customers putting own as I of in spirit and doing with cooperation their to had out who pressure reason they between because the industry. well MAS-REMOTE But, there that genuine having think the pricing. think us the like an were were was with or demons able I ones they managing actually customers and offering work affecting for ourselves we helped grappling every managing as

some lose had we with an didn't any issues account the budgets So, other on customers of to because they we really pressures pricing, and their had have customers end may have. engagements coming that

Jack Cronin

losing. stuff not wouldn't it margin It [indiscernible] mean, would low I we were the we're really overly that. interested concerned and of in be

Josh Vogel

of signed, it of was much you kind a know get I already I guess you to how And Yes. give December of sense closed have back, Thank sense business put new was amount? XXXX, some Understood. deals quantified XXXX. around then Can Paul, comment made you us you. were already size 'XX? that just delayed just a the what in want a just in closed or us lastly,

Paul Burton

Yes.

are QX, this associated closing had in and in pandemic, we reasons of the delayed three year. getting but to because ultimately Europe kept we particular push QX then they that anticipating deals Asia and So, and with

We two in have closed and one Asia, since in of significant deals Europe in deal January, size.

don't number I to But in well So over want $X the particular. million. disclose

Operator

Lisa Our coming from Investment Please next question Research. go Instructions] ahead. [Operator Thompson of is Zacks

Lisa Thompson

to a business quarter as the talk XXXX? to quarter going staffing - in back stop sequential talk of had fourth want end little like about and sequentially? expect this happening staffing into quickly revenues again you And what do we let’s first how wondering gone three you I start hoped and and last was as come I by that you I didn't feel quarters, growing see to down year. So bit the like the has about felt into

Vivek Gupta

the growth in QX, yes. pretty the After a the have holidays seasonally quarter. quarter revenues the up have much actual the mark. of of year drop million did - following Lisa, So in end in benefit at of revenue a And a $XX we around of the furloughs comes headcount end the QX also but the towards have et We our staffing that lot and QX, in held business kind which cetera. of

can impacts we we revenue the with that the that So that have. consultants number base get always of

definitely and in seeing additions - and had start can’t are we that should we - yes looking should headcount QX the two the be but are things exact come last We of than up should I in. the on benefit the we that better improvement quarters. comment amount, definitely

Lisa Thompson

Amber QX of about that know seems Okay the weak that’s $X.X And there you be it the a was on It Data I there should fairly is know? and I good for or obviously $X.X like to million and hear. going something million. quarter of don’t business which in at Analytics look added don’t at rest

Paul Burton

million $X.X I significant Europe deals deals the noted that saw had $X.X I’ve and Asia. as which quarter in a And QX. totally shutdowns particularly $X.X in we the was million we it to and delays harsh pandemic No fourth out million and and as closed already related primarily in said slip result, that

the light at QX behaviors they by it pipeline. improved substantial different So represented EBITDA and tunnel the the of with have a to record was quarter. Customers very to the so seeing improved end especially solid as continue not quarter effects We vaccines core good saw the overall in pandemic, pandemic quarter business. reduce margin, distribution. the relate we a but increases was it their of for are We was the a

forward. optimistic very we're going So

Lisa Thompson

where you about AmberLeaf you Okay. potentially either are talked repricing? or synergies margins in their how about had through you on process? could that improve you talk And Can just

Paul Burton

integrated of running our and processes them. completed operating model integration essentially and with an they're QX was that the what in we policies have so, go-to-market, AmberLeaf Yes means

seeing and anticipate improve for serviced and the business. and margins of opportunities nearshore And offshore. annuity work for are can nature AmberLeaf do overall of would anticipate I the be that some we So, the an

So overall, we going do forward. expect the margins to improve

Lisa Thompson

Okay.

still have even this some you quarter? So, after

Paul Burton

Somewhat after this quarter.

Lisa Thompson

Improvement margin like in cost-cutting?

Paul Burton

yes the effectively yes, - integration, in integration completed yes, that was Oh, quarter. fourth the

going quarter to we're of onwards, now start So, upward first the seeing trend margins. increasing

Lisa Thompson

Okay, good.

taking just it at like XXX So, Can and in it lower or that be SG&A to level the subtract and just quarter applying we one-time expect that Jack to fourth the SG&A. and QX? take

Jack Cronin

COD our We sure. staffing have Well, I clearly would we are QX. - - backlog our bookings, increasing that pipeline, D&A our increased X% in levels our say activity and for a had in in growth

So, be what we there of is SG&A activity an be increase levels is clearly going ramp-up to in to to support going some in and QX. revenues think

So, little that if about than did bit number. in a think going talked that that the to you to you with the QX. up be baseline come QX math I We're higher

Lisa Thompson

all Okay right.

So, growth kind of you XXXX going just about you're how XXXX you talk it on there feeling expect revenue whether to or far could come it really Just to versus anything is broad-based could slowly out? how either in can expenses? trickle as back just roaring like seems it's - play look you or

Vivek Gupta

are still we I the out of are, guess we not in Lisa pandemic, it.

So, the uncertainties are still there.

what scaling mentioned level top-line not where and SG&A increase, analytics Jack the This from how hard is what to still definitely, out, going which precise in beginning whole clear. of just the be on at be it's the it's But, year scaling. plays is of So, the for staffing this very reached. to year the going beyond going year to that will thing have as look it's and side, actually the give And a we the to business definitely terms and recovering is projection data like. will

organization answers that the don't the two the is and if and that I are So, the segments your… direction intent know that taking. is

Lisa Thompson

bit. a yes little Okay,

shutdown with certain about you was even little countries has to still last in in compare the or a talked how Just bit you is couldn't improved everything situation? and same travel quarter, international anything

Paul Burton

April had they to shutdown Europe a Well, remain shutdown. and shutdown probably back going and so Asia early March, very hard

of major in as delayed close deals, of which And pipeline hard a are two and we Asia figured have infrastructures. already you've saw lot much I've of to earlier lot shutdowns. out to The but some outside places, are pushed proceed mentioned given result, in our still I closed. adapted U.S. capabilities have and a markets and we get out business of continue and as think shutdown continuing need seen to is Europe would So, terms build what those these running expected and they've a businesses to the be very the as how their and of going businesses to in they're effect shutdown

ways. it. were on period going assess with investments at So, think certainly happens. I there mutation how of terms there a don't vaccines long environment, to businesses postponing understands in this of work, I degradation to was well-known sort continuing nine What cetera after of I material this is the the think is a should and it's of unless something or to how But as do in in weird about environment et was what months where to the sectors point trying work different And a going was the pandemic time, it this everyone relating last? get worse different doing quantity a

see on And think, we I the should things improve. we are upswing.

Operator

[Operator Mr. Gupta like the Instructions] back comments. I'd to over this closing in At showing questions floor to for additional queue. turn We’re no time,

Vivek Gupta

you. there thank in operator, no you, if our you sharing for forward today. Thank Stay look call first safe XXXX and joining late like quarter we to April. our I to with Thank are further would you questions, results

Operator

for gentlemen, This you and thank Ladies participation. concludes today's event. your

a disconnect at logoff this the time your may have wonderful You lines day. or webcast and

Mastech Digital (MHH) 10 Feb 212020 Q4 Earnings call transcript